Business confidence dips in February, but still seen on track for 4% GDP rebound

The National Bank Business Outlook survey of business confidence in February found a slight deterioration in confidence about both the wider economy and firms' own outlooks from January. But National Bank senior economist Khoon Goh said the drop was within the range of usual monthly volatility and the economy remained on track for a rebound generating growth over the next year of 4%. "Our composite growth indicator from the survey continues to flag the potential for a typical pro-cyclical pick-up in momentum and the possibility of 4 percent annual growth over the year ahead," Khoon Goh said. "Gauges such as employment and investment intentions are lagging the pickup in firms’ own activity expectations – more than what we have seen historically and suggests a more muted recovery. But abstracting from near-term noise, the trend has been one of general improvement for a year," he said. National Bank did not comment on whether the survey results changed the outlook for interest rates, but the relatively small move is unlikely to shift expectations much. Current markets and economists expect the Reserve Bank to increase the record low Official Cash Rate of 2.5% at some point between June and September. Here's the full release below on the National Bank survey:

An optimistic tone continues to permeate through The National Bank Business Outlook Survey. Headline confidence, at +43, is down on February’s reading of +50, but still represents a healthy level of optimism across the economy. All, bar retailing, slipped in the month, reversing last month’s trend where retailing dipped, and confidence across the remaining sectors increased. We continue to pay close attention to firms’ own activity expectations – the key lead barometer that tracks economic growth, which also fell this month from +42 to +39. This is still a high level of confidence in terms of what matters for this economy, namely what’s actually happening at the business level as opposed to the general climate, with the latter easily influenced by various anomalies from month to month. The remainder of the survey is by-and-large a mixed bag. Employment intentions were unchanged at +9, profit expectations fell 3 points to +19, export intentions fell 6 points to +25, and both residential and commercial construction intentions eased. Pricing intentions and inflation expectations were unchanged. Investment intentions went against the grain, rising a point. But all are movements well within what we would consider to be normal monthly volatility. Our composite growth indicator from the survey continues to flag the potential for a typical pro-cyclical pick-up in momentum and the possibility of 4 percent annual growth over the year ahead. Gauges such as employment and investment intentions are lagging the pickup in firms’ own activity expectations – more than what we have seen historically and suggests a more muted recovery. But abstracting from near-term noise, the trend has been one of general improvement for a year. Whether this month’s lull represents exactly that or something more persuasive remains to be seen. But at present the change has been insufficient in magnitude between months to suggest to us that the robust level story is no longer intact.